Questions emerge about energy bill's impact on federal fuel purchases

A little-noticed provision in the big energy bill that President Bush signed last month bars the government from buying fuels made from nontraditional petroleum sources that generate more global warming pollution than conventional oil-based products.

But the reach of the procurement language -- much less how it will be implemented -- is unclear. And it has quickly raised questions about whether the government must steer clear of fuels made from oil exported from Canada's booming oil sands sector.

The potential implications of the provision for the oil sands are under review, an Energy Department official said.

The provision says government contracts to buy alternative or synthetic fuels -- including those from "nonconventional" petroleum sources -- must specify that "lifecycle" emissions must be less than or equal to emissions from conventional sources. It does not apply to fuel purchased for research or testing.

"Lifecycle" emissions means the total amount of pollution from extracting the resource, transporting and refining it, and burning it in engines.


The big-ticket items in last month's bill are its mandates for higher auto mileage standards, expanded ethanol production and increased lighting efficiency.

The fuels provision was included in the portions of the bill that were drafted by the House Oversight and Government Reform Committee, which is chaired by Rep. Henry Waxman (D-Calif.), a strong ally of environmentalists.

"Congress was concerned that nonconventional new sources of transportation fuels, such as coal-to-liquids and tar sands, could move us backward in our efforts to reduce global warming," a committee source said. "This provision bars federal agencies from spending taxpayer dollars to buy such fuels and make the problem worse."

It represents the latest effort to prevent what environmentalists view as an apocalyptic energy future: a headlong rush into plentiful, carbon-rich heavy oils and coal-based fuels that come with a heavy environmental footprint.

Interest in nontraditional oil sources

Indeed, the measure comes amid increasing interest in an array of nontraditional oil sources.

Unconventional oils and coal-based fuels are attracting increased interest and investment due to high oil prices, questions about meeting future demand with conventional crude oil and worries about U.S. energy security.

Price and security concerns are prompting industry and military interest in building a domestic industry to make jet fuel and other products from massive U.S. coal reserves.

Several companies have plants in the planning stages, though the industry is also seeking loan guarantees and other supports that Congress has thus far not provided. The Air Force, facing rising costs to meet its fuel needs, is testing synthetic fuels in its aircraft. And it is hoping to lease space at Malmstrom Air Force Base in Montana for construction of a coal-to-liquids plant.

Legislative proposals in Congress, which have not been approved, would provide the military authority to enter into long-term contracts to buy coal-based jet fuels.

Coal-to-liquids fuels, absent carbon capture and storage, would produce roughly twice the greenhouse gas emissions of conventional fuels. But coal industry and military officials expressed confidence they could comply with the language.

Corey Henry, a spokesman for the Coal-to-Liquids Coalition, said plants would be built with carbon controls and the language presents "no concern whatsoever," adding, "We have long advocated an equal to or less than standard for CTL fuels."

An Air Force official, in a statement, said compliance would be feasible. Kevin Billings, deputy assistant secretary for energy, environment, safety and occupational health, said that "when we begin to buy commercial quantities of domestically produced and domestically sourced synthetic fuel, we will require it to be greener than jet fuel refined from petroleum."

But Billings cautioned that there is work to be done to determine how to meet the "less than or equal" threshold. "Before anything can be done, the DOE [Department of Energy] and EPA will have to establish a baseline for measuring the lifecycle greenhouse gas emissions for petroleum and alternative fuels. This will take some time," he said.

Elsewhere, the Interior Department, spurred by the broad 2005 energy law approved under a Republican-controlled Congress, is working with several companies investigating ways to tap gigantic oil shale deposits that lie in Colorado, Utah and Wyoming. But any commercial production efforts are considered years away.

Questions about oil sands

Already in full swing is the development of the oil sands in Alberta, which contains vast deposits of bitumen, a heavy and sticky form of oil bound up with sand, clay and water. The sands already provide almost half of Canada's overall crude oil production, and the share is rising.

The province's massive resource has made Canada the world's No. 2 holder of oil reserves with 179 billion barrels, behind only Saudi Arabia. Oil sands production is currently about 1.25 million barrels per day and is forecast to potentially triple by 2015.

The United States is already the largest market for Canadian oil by far, with about 1.6 million barrels per day exported to the United States, according to the Canadian Association of Petroleum Producers.

And with even more oil from the tar sands expected, a number of U.S. refineries are expanding to handle the increase, with pipeline expansions also planned.

For instance, ConocoPhillips and oil sands developer EnCana Corp. in late 2006 announced a multibillion dollar deal to jointly boost oil sands production and expand ConocoPhillips refineries in Illinois and Texas to handle more of the Canadian oil.

The oil sands are a major contributor to Canada's greenhouse gas emissions. The Pembina Institute, a Canadian advocacy group, estimated in a report that the oil sands are projected to contribute up to 47 percent of the "business-as-usual" growth in Canada's total greenhouse gas emissions between 2003 and 2010.

But a month after the energy bill was signed into law, it remains unclear if it could be applied to federal purchases of fuels that could be traced back to refineries using oil sands.

"The U.S. has advised Canada that it has not yet assessed or determined any implications to U.S. federal fuel procurement practices arising from the bill," a DOE official said. "The U.S. government will work cooperatively with Canada in the coming weeks on this as well as other energy issues."

However, this official also noted U.S. support for the Canadian oil. "The U.S. government has on many occassions publicly welcomed oil sands expansion, given that this expansion further enhances U.S. and North American energy security," the official said.

Greg Stringham, a vice president with the Canadian producers group, said the group has made inquiries with DOE about the language.

He noted that DOE is looking into the issue but said early indications do not suggest a problem. "They don't see it as being preclusive, but they are still doing their investigation," he said. "We are still waiting for the full interpretation."

Tom Olsen, spokesman for Alberta Premier Ed Stelmach said that while there are some "unknowns" about the provision and it is being assessed, he is not aware of any immediate problems.

Olsen also said that the province and the Canadian government is taking steps to control emissions, and touted eventual use of carbon capture and storage technologies. "We think we are on the verge of the kind of technology that will allow us to proceed so that this component of the legislation will not be an issue," he said.

Stelmach was in Washington this week advocating for continued investment in the oil sands. In a speech this week, he touted the province's environmental programs and said that oil sands projects have already reduced their carbon dioxide emissions "intensity" -- which is a measure of remissions relative to output -- by up to 45 percent since the 1990s.

Climate concerns

Nonetheless, environmentalists say the growth of oil sands development presents a gigantic greenhouse gas problem.

Dan Woynillowicz, a senior policy analyst with the Pembina Institute, said the energy intensive task of either mining the oil sands or separating the bitumen in situ result in far more greenhouse gas emissions than conventional oil recovery.

Producing one barrel of oil from the sands results in about three to five times as much greenhouse gas emissions as pumping a barrel of conventional oil, he said, while on a "lifecycle" basis fuels made from oil sands have about 15 to 20 percent more emissions than fuels from conventional oil.

The group argues that amid high oil prices, it would be economically feasible for oil sands production operations to become carbon neutral by 2020 through a mix of steps including greater efficiency, carbon capture and sequestration, and buying offsets.

Woynillowicz praised the language in the energy bill -- he hopes it serves as a "wakeup call" to the industry and the Canadian and provincial government.

Elizabeth Martin Perera, climate policy specialist with the Natural Resources Defense Council, also welcomed the congressional language, noting the restrictions it places on future military purchases of coal-to-liquids fuels. "It does block potential high-carbon fuels that would move us backward," she said.

But she said it remains unclear whether it could be applied to the oil sands. She said it would be difficult to say how federal agencies would trace their fuels' origins to determine whether they were derived from oil sands.

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